Philippines’ remittance industry embraces cryptocurrency

Home to the world’s third-largest remittance market after India and China, the Philippines is witnessing robust growth in the tech industry as the number of remittance payment platforms for the unbanked proliferates.

Start-ups focusing on remittance payments carried out using Bitcoin – the world’s first global, digital, decentralised currency – have flourished in recent months, and are now set to become a major ICT growth driver in the country. With overseas workers already facing a heavy cost burden due to high remittance and hiring fees, new payment platforms will also bring much-needed relief to millions of Filipinos working abroad, creating significant investment opportunities in the country’s burgeoning start-up sector.

Bitcoin rising

In May, Philippine Bitcoin umbrella company Satoshi Citadel Industries (SCI) announced it had raised an additional $100,000 in seed funding, following impressive growth in its first year. Investor Joe Maristela told local media that the company’s aim of widening financial inclusion in the country had caught his attention and noted the importance of developing new industries like the tech sector. “We must stop thinking about how we can grow our current industries and begin to think about which new ones we can create. Philippine tech is the path to this future, and investors must pave the way,” he said in a release.

SCI has grown to become one of the largest Bitcoin ventures in South-east Asia, with a portfolio of seven start-ups, while its staff numbers have expanded to 20. SCI’s most recent success saw it acquire the Philippines’ first ever Bitcoin exchange, Buybitcoin.ph.

Indeed, with the World Bank estimating in April that international remittances sent via mobile technology stood at just 2% of total global remittances in 2013 – according to the latest available data – digital transfer and payment platforms hold considerable potential for investors.

High fees hurt foreign workers

The Philippines’ remittance market was worth a total of $28bn in 2014, according to the World Bank, compared to $70bn in India and $64bn in China, and a global total of $583bn. For many families, this income represents a critical lifeline due to the high rate of unemployment in the country – the figure reached 27% in the fourth quarter of the year – making overseas employment an important channel for excess labour force absorption.

At the same time, the average cost of sending a $200 transfer stood at 8% in 2014, while fees at traditional remittance providers in the Philippines, such as Lhuiller and Palawan Pawnshop, are close to 10% for small transactions of up to $300, according to a report in Bitcoin Magazine. It noted that the majority of Filipino overseas foreign workers opt to use these services as a result of delays in the traditional banking system, with wire transfers taking up to five business days to process, as well as high minimum deposit requirements.

Another issue is that an estimated 73% of the Philippines’ population are considered “unbanked” by the MasterCard Worldwide Centre for Inclusive Growth, forcing them to turn to high-priced remittance services instead of bank wire transfers. These charges come on top of high recruitment costs. For examples, domestic workers moving to Hong Kong pay $1719, or the equivalent of 3.4 months’ salary, in recruitment costs, including fees paid to the recruitment agents and for medical insurance, according to a World Bank report.

High-tech transfers

To tackle the problem, there has been a flurry of new activity in the past two years in the provision of digital remittance payment platforms, offering a much cheaper alternative to foreign workers. These include Coins.ph, Bitspark and SCI, which owns Bills Ninja, prepaidbitcoin.ph and Bitmarket.ph, in addition to Buybitcoin.ph and Rebit.ph, the company’s flagship product.

Bitspark initially launched operations in Hong Kong in late 2014, and expanded its services to the Philippines and Indonesia in January 2015. The company charges a flat rate of HK$14 ($1.81) for payments made to the Philippines, making it an attractive alternative to traditional remittance providers.

Although Bitcoin transfers are traditionally made by the user via an online wallet, providers have also partnered with local and foreign banks to expand service access. Bitspark allows users to send payments from a booth in World-Wide House, an office building located in central Hong Kong, while SCI’s Rebit.ph allows users to receive cash in more than 20 different bank outlets, converting Bitcoin to pesos with a zero percent conversion fee.

Coins.ph, which launched services in 2014, partnered with the country’s largest e-commerce platform, Metrodeal, as well as others including Lhuiller, Banco de Oro, Bank of the Philippines Islands, China Bank and MayBank. In December, the company announced a new partnership with Security Bank that will enable its clients to purchase Bitcoin by depositing cash at 450 ATMs, and to make withdrawals from the same ATM network. It is also expanding to offer bill and credit card payment services, and a platform to pay for utilities, insurance and tuition.

Although growing in popularity, Bitcoin has experienced price fluctuations in the past two years, peaking at $1000 before falling sharply in value last year, and the currency stood at around $236 as of late May 2015. Nonetheless, defenders of the Bitcoin remittance process say it is risk-free. “The beneficiary doesn’t need to know that those funds were ever transmitted via Bitcoin, they only know that the sender had to spend a little less money while doing so. There’s no volatility risk as the recipient never touches Bitcoin; all risk is managed by the service,” said Luis Buenaventura a co-founder and head of product at Rebit.ph, in an article for Tech Crunch.

In May, the digital currency reached another milestone when the New York Stock Exchange launched a Bitcoin price index, while tech start-ups are mining the sizeable potential for new service offerings in what remains a relatively untapped market.